But now, after a clear bout of weakness, currency strategists are split over whether the currency will rally again.

Here are the main factors behind the decline:

1. Weaker-than-expected economy: Traders have pushed the dollar lower after a string of disappointing economic releases raised questions over whether the U.S. Federal Reserve will raise interest rates later this year, as previously expected.

"If we continue to see weak economic data, then a rate hike could be priced out for 2015 altogether," said Kathleen Brooks, a research director at FOREX.com. "The (dollar) downtrend seems fairly entrenched."

But others think a dollar rebound may be around the corner.

"Although currency markets remain disappointed with U.S. economic data and have therefore curtailed the strong dollar bias, the majority of economists still believe that the Fed will hike in September," said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

If a rate hike comes in September, "the greenback could get its groove back relatively quickly," he said.

Shahab Jalinoos, head of global FX strategy at Credit Suisse, predicts the recent pullback is temporary.

"The recent [dollar] pause fits the pattern of previous bull markets," he said in a research report. "Given how far and fast the dollar had run, a consolidation was overdue."

Jalinoos said the average pullback after a big dollar rally is 6% and lasts for roughly two months, on average.